Oz game industry takes its first GEC casualty
According to various sources, Pandemic Studios in Brisbane has struck the economic iceberg, with the apparent loss of all hands. It becomes the first casualty in the Australian industry of the global economic crisis. Pandemic was originally an independent developer with two offices – one in Brisbane, the other in Los Angeles. They have put out a number of decent titles (such as the well received Destroy All Humans) and represent one of Australia’s top game companies. In July last year Pandemic merged with Electronic Arts in a deal which, to quote Gollum, “tricksy”.
Pandemic’s impending demise – if the rumours are to be believed (and they seem like they are) – is a worrying development for the Australian game industry. It may presage further closures in the future. There seems to be two schools of thought regarding the relationship between games and the economy. Some argue that games, like films in the Great Depression, will survive and perhaps even thrive as people turn to entertainment as an escape from the less than fabulous reality of a poor economic climate. This perspective does seem to be supported by the stats – sales growth for games and consoles is still in the double digits, and where retaillers in most sectors are seeing sharp declines in profitability, some games retailers are recording increased sales – up to 22% in one case.
The other perspective is the pessimistic one. Game development is highly reliant upon investment money, and while returns for the top games can be fantastic, picking a winner can be hard. Put simply, games are a is a high risk investment. In an economically conservative environment, sources of investment capital for game development are going to dry up, which in practical terms translates to fewer big game projects, more project cancellations, and this translates to job losses and perhaps studio closures. For the biggest companies like Electronic Arts and Activision, who can finance their own game development, it means pulling back to safer core business and maintaining profit margins. When growth through development is harder to come by, maintaining profits is a matter of saving money – or, as EA’s corporate communcations manager, Mariam Saghayer puts it, though a “cost reduction initiative that will impact facilities and headcount”. While that makes it sound like Mariam works for a beef exporter, Mariam does in fact work for EA, and despite her corp-talk, she means closures of “studios” and sacking of “people”.
Most likely both of these perspectives will co-exist. Game companies can be selling lots of titles and increasing profits while there is an overall contraction in the industry as a whole. This will possibly translate to less innovation in the mainstream game market and a slowing of the development cycle. In other words, there won’t be a next-gen console for some time to come – it will be Wii, PS3 and XBox360 at least until the economy becomes stable enough for companies like Sony (who recently took a $1.1billion hiding) to feel comfortable taking risks. So, expect to see the big companies do more of the same and milk tried and true strategies for everything they’re worth. The Sims 3 will go on and on and on.
What this means for the Australian industry is an interesting question, which I’ll leave for another post.